Laverty: Car tax rules hurt fiscally responsible RI cities, towns

December 26th, 2011 at 6:00 am by under Nesi's Notes, On the Main Site

By Patrick Laverty

Fairness.

If there is one point that Cumberland Mayor Dan McKee tries to get across in an interview, it’s that he’s just looking for fairness. It’s an issue that he’s been trying to get across to the General Assembly for some time now. We’ve heard in recent years about the fair-funding formulas for our cities and towns, but a major problem exists: the towns have differing reimbursement rates. And McKee feels those rates are not “fair.”

In 1998, the General Assembly passed a law that would phase out the motor vehicle excise tax over seven years, meaning Rhode Islanders would no longer be paying taxes on automobiles by 2005.

In 2002, the economy was turned upside down and the Assembly extended the length of the phase-out. A few years later, it was suspended indefinitely. Since then, most of us have felt the pain of more recent legislation that cut the exemption in many towns from $6,000 to $500.

That cut in the minimum exemption means fewer dollars for cities and towns, because they “are paid by the state for the lost taxes due to the exemptions” [pdf]. When state officials reduced the amount they will pay the cities and towns, the municipalities lost a great deal of revenue.

Why did the General Assembly do this? The answer is simple and has never been denied: to balance the state budget.

As much as some may disagree with balancing the state’s budget using local money, let’s deem that acceptable for now. But are the towns even being reimbursed fairly and equally? When you look at the numbers, it would appear not.

Let’s start with a basic explanation of how this works. The “exemption” is the amount of your automobile’s value that doesn’t get taxed. Originally, the exemption was $6,000. Last year, it was dropped to $500. That means in one year a car worth $6,000 went from being completely exempt from taxation to being taxed on $5,500 in value.

Using Cumberland numbers, here’s an example of how the exemption and state reimbursement works:

Automobile value: $20,000
Exemption: $6,000
Taxable value: $14,000
Tax rate: $19.87 per $1,000 of taxable value

In Cumberland, the car tax bill would be $19.87 x 14 = $278.18, so until last year, the owner of the car would be charged a tax of $278.18.

The state would then give each town the money not charged because of the exemption. In this case, there was $6,000 in value not taxed, so multiplied by the $19.87 rate means Cumberland would receive an additional $119.22 from the state for that vehicle.

When lawmakers lowered the exemption it reimburses from $6,000 to $500 last year, the state’s part of that equation dropped significantly. Instead of getting $19.87 for $6,000, it was for $500. The town would now receive $9.94 for that vehicle instead of $119.22 – a drop of 92%.

This is the part that wasn’t done fairly. Looking at the charts below, we can see communities with a similar amount of exempted value. But we see differences in how much the state paid each town for the exempted value:

Town Exempted Value Reimbursed
Cumberland $152,873,530 $216,513
East Providence $149,356,048 $445,084
Coventry $147,009,605 $225,597
Johnston $122,806,470 $382,377
N. Providence $110,073,147 $350,127

Remember, the amount reimbursed from the state is supposed to be based on the amount of exempted value. The list above shows Cumberland had the most exempted value yet received the lowest reimbursement from the state. That’s not exactly what you’d call “fair.”

This isn’t just an issue in that price range. Looking at the bigger cities, we see the same discrepancy:

Town Exempted Value Reimbursed
Warwick $404,853,505 $1,156,532
Cranston $275,835,337 $951,625
Providence $251,384,363 $1,617,922

Again we see cities with a higher exempted value receiving less in reimbursement. Why would this be? Possibly it’s because of the tax rates set by the cities themselves – many towns raised their car tax rates before state lawmakers froze them in 1998.

The same car is being taxed at a rate of $76.78 in Providence but only $19.87 in Cumberland. The towns that tried to be fiscally prudent in 1998 are the ones now receiving less in reimbursement money. But the rules have kept changing in the years since the original auto tax freeze in 1998. One could conclude that if they had the chance to do it all over again, many towns would go for the highest rate possible. At that point, the state might as well have set a standard rate for all towns. Instead, the state is rewarding the behavior of the cities who decided to raise their car taxes to ridiculously high rates and not be as fiscally responsible to their taxpayers.

So what do towns like Cumberland get for trying to be fiscally prudent in the past? They get shortchanged in the present. We hear about the need for “belt tightening” at the local level. If the state was serious about that, they’d make changes to the reimbursement system and they’d reward the towns who tightened their belts long ago. In a word, they’d be fair.

Patrick Laverty is a computer programmer and a contributor to the blog Anchor Rising.

Ted Nesi will return on Wednesday, Dec. 28.

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3 Responses to “Laverty: Car tax rules hurt fiscally responsible RI cities, towns”

  1. HonestGuy says:

    This is CRAZY. It appears that this writer is making the case that lower tax ‘prior fiscally prudent’ communities should have gouged us taxpayers as much as the biggest car tax cities. Tax rates on an automobile of 35, or 75 per thousand are an OUTRAGE,and the NADA “premium condition and value” column used to assess the values of each car is almost criminal. That 20-25 year old cars are not covered by NADA (although they are in other used car value guides) and are classed as “classic” cars and assessed even way higher, is even MORE an outrage. That The RI Vehicle Value Commission made up of Soviet style morons, plus three unfilled seats is beyond a joke. These are the rodents who deemed the HIGHEST column in the NADA book as the “fair” place to find values, AND they simultaneously FAILED to abide by the statute (RI LAW) that tells them to include car value experts and find a fair value!

    The RATES are too high, the ASSessments are completely insane, the VVC is a soviet joke made up of unappealing old farts with no ethics, and this story is about the differences between one town and another’s overall reimbursements? Hello….

    Good people and businesses are leaving or not coming to RI in the first place because this crap is piled so high and deep that even the press cant see the forest for the trees. How sad.

  2. Cosmo says:

    Patrick Patrick Patrick where do you think you’re living? You want fair, go somewhere else, otherwise welcome to Tax Hell and Providence Plantations. Public officials here are not interested in “fair”, they are simply interested in maximizing the amount of taxpayer money they can throw down the ratholes where their union allies, friends and relatives live. The statistics you cite simply prove some of them are better at playing the game than others. And for the record, cities and towns should be fiscally responsible for the same reason a man should be honest…because it’s the right thing to do, not because it is rewarded or not.

  3. Art says:

    Instead of tax games, the only real solution to our state budget is to cut spending. Government has to adjust to economic reality and not find new clever ways to screw people. The current system is a feudal system. Rise up, serfs!